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money investment, investment help
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7/31/08 Investment House Daily
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MARKET ALERTS:
Targets hit alerts: KSU
Buy alerts: JCI; RIMM; SYNA; TMO
Trailing stops: None issued
Stop alerts issued: None issued
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SUMMARY:
- Market turns right back down from the gains, spooked by jumping jobless claims ahead of Friday jobs report.
- Jobless claims jump to 2003 levels. What does history tell?
- Greenspan still says recession is a toss-up and his reasoning is actually rather straightforward.
- Jobs report to set the near term direction as indices remain in decent position to continue the relief bounce.
Jobless claims, GDP rattle investors, but no damage done.
Jobless claims jumped to 448K hitting 5+ year highs. GDP was up but the 1.9% was less than the 2.3% hoped for. Earnings were hot or cold with either big beats or clean misses. To top it off, oil was trying to bounce further on top of the big chunk of gains Wednesday.
That put a damper on the upside and stocks started the session lower. NASDAQ quickly found some buyers, however, and was up. Indeed, it was up all session, and it was almost joined by the NYSE indices when oil turned over midday and ended the session lower (124.08, -2.69). Something of a reversal from Wednesday when the NYSE led and NASDAQ could not get out of its own way. Just when the market was about to make some lemonade, however, it didn't. The entire market, including NASDAQ, sold off in the last hour to close negative with the large cap and mid-cap NYSE indices down over 1%.
Why the late selling? Was it some major sell program that swept through, indicating a selloff in the morning? No. After the terrible weekly jobless claims the market had cold feet ahead of the July jobs report. CNBC was interviewing Alan Greenspan in the last hour of the market, and the interviewer implied it was Greenspan's affirmation of his decisive unambiguous 50/50 call on a US recession that caused the market slide. Right. Grenspan has some interesting things to say, and he says them in English now that he is no longer Fed chairmen, but the July employment numbers mean more to the market than what Greenspan has to say just now. Even though the market ended lower across the board, it did not put itself in an awkward position, or at least no more awkward than the nasty selloff and modest oversold bounce already had it in. With the indices still sitting on near support they are still in position to make another move higher in the relief bounce process even with NASDAQ again confronting the 50 day EMA and again failing.
TECHNICAL. Internals were back to negative as the indices put in the old high to low move that often accompanies downside sessions. The NYSE indices put in the worst showing, closing at session lows while NASDAQ gave up gains but did not crash. Take it for what it is worth: NYSE struggled, NASDAQ faded, but no major damage.
INTERNALS. As with the intraday price action, internals were on the negative side but nothing outrageous. Breadth was -1.6:1 on NYSE and that was the worst of it. NYSE volume was lower while NASDAQ volume moved higher. Now NASDAQ finished lower, but most of the session it was upside and succumbed late to the pre-jobs selling. Thus that is not 'bad' volume.
CHARTS. NASDAQ again moved to the 50 day EMA and this time moved on through, but by the close it gave it up. Not great action, but again, it slipped in the last half hour on nervous, pre-jobs report positioning. Not going to read too much into that. SP500 and DJ30 sold back, but they are at near support still and in decent shape to bounce if the numbers are okay. The weekly jobless claims suggest they won't be; thus if they do come in better, there is more impetus for an upside boost.
LEADERSHIP. Energy was down as oil pulled the reversal. Homes were decent, financials held their own. Large techs looked pretty solid until that late slip. Medical and health services were again solid. The sad story was the industrials that, after enjoying a strong Wednesday, were whacked. Agriculture was also down, but it was not hammered. So much for the return of the Big 3, at least for Thursday. That keeps leadership on the thin side, still trying to set up and form new bases. The up and down market, however, is just how those are formed, so with each paired up and down move the stocks put in more time in their bases. At this juncture that is about all you can ask for.
THE ECONOMY
Weekly claims surge causing worry, but you have to look beyond the concern.
Jobless claims surged well beyond expectations of 395K, already pretty high. The 448K was easily the highest of the year. Of the past 5 years for that matter. The last time weekly claims hit this level was April 2003. That is the kind of one-two punch that adds a lot to the gloom.
Emotion is what gets the best of you in the market and indeed in any endeavor. In sports it is good to be emotional, but too much and you don't play well. What was going on in early 2003? The market had bottomed and the economy was on the mend; those two naturally go together. The market bottomed in October 2002, surged, then wasted away into March. At that time many said it was just another failed bear market rally, one of the many in the bear market. We saw a lot of good patterns in growth stocks, however, saw that price/volume action was very good, showing accumulation in stocks, and concluded that this was just a consolidation of the big move off the October low, the second low of the double bottom. As the market moved laterally and slightly lower on low trade, investors turned despondent again, yet the action was perfect. A classic shakeout ahead of a massive surge in 2003.
Okay, are we there right now? No, but that doesn't mean this is not a sign that things are getting there. Many of the sentiment indicators are in line, the housing market has bottomed, financials are trying (trying) to put in a bottom. Oil has dropped to a key level, and if it breaks lower again it will be closer to 100 than 120 in a few weeks. All positives for the economy and thus the market.
Problem is, there is still work to do. Not many stocks in leadership position. Lots of rebounds on this move, but they are just rebounds. They need more sideways, up and down action as seen of late to form up bases that show accumulation by the big boys. Leadership is still thin right now, and a market cannot rise or at least make a significant breakout without broad leadership. Again, there are sectors trying to form up, but they need more time.
So then what about 2003? Well, jobless claims were ugly for quite awhile before they started to recover. Thus while the Thursday reports shows they are getting to those kind of extreme levels that suggest a bottom is somewhere in the offing, timing is, as always, the key. This is the first really bad reading on these numbers (though continuing claims has really hurt at +3M for over a month), and we can safely presume there are more such numbers ahead before they slip for good.
Greenspan speaks again, and this time in English.
Earlier I talked about CNBC trying to show it moved markets by implying that a last market hour interview with Greenspan caused the market to sell off. Greenspan simply echoed what he has said for the past year: the recession chance for the US is 50/50. Never was a Greenspan fan, but it was nice to hear that he could really speak English and not talk in tongues regarding the economy and the world economy.
He said Paulson had no choice but to step in and bail out FNM and FRE. He didn't like it, but he implied he would have wanted the same thing if he was still the Fed head. He said the two were "an accident waiting to happen." He particularly despised the fact that public funds are used to support and in this case bail out the companies, yet their profits all go into private hands. Kudos. He wants them bailed out, then chopped up into 4 or 5 pieces and sold off to private hands with the taxpayers getting the proceeds. Sounds great.
Okay, back to the recession talk. Greenspan, despite some better economic data here in the states, still holds to his 50/50 recession talk. Why? Because much of the reason the US has hung in there, i.e. the foreign demand for our exports thanks to their growth and our cheaper dollar, is not going to last.
While he did not say the dollar would recover he fears that the slowdown in the other world economies, slowdowns that we are already seeing and reported on the past few weeks, will truncate their demand for our goods. With that demand gone we lose the main motor of our economy as it skirts along the textbook definition of recession. With the consumer in the tank, that is a very real problem.
Oil was not discussed in detail, but it is one of the wildcards. If oil crashes hard through 122 and lands closer to 100 than 120 on the next leg lower, that will work to heal a lot of wounds inflicted the past year as oil doubled from $70/bbl. Oil prices near 100 will, as strange as it seems, help reinvigorate the economy and indeed the other world economies. That is needed just as they slip from their recent solid performance. If it happens quickly enough it can forestall any major damage outside of this initial decline.
THE MARKET
MARKET SENTIMENT
VIX: 22.94; +1.73
VXN: 26.24; +0.7
VXO: 24.67; +2.04
Put/Call Ratio (CBOE): 0.95; +0.08. Another session below 1.0, but that is no big deal given the backlog of closes above 1.0 over the past couple of months.
Bulls versus Bears:
For the second time this year bears are crossing above bulls, doing so basically where they did in March on their way to much more extreme readings just about the time the market made the March low and started the last rally. Positive for the market and if SP500 is going to hold the long term trendline is the place to do it.
This is a reading of the number of bullish investment advisors versus bearish advisors. The reason you look at this is that it gives you an idea of how bullish investors are. If they are too bullish then everyone is in the market and it is heading for a top: if everyone wants to be in the market then all the money is in and there is no more new cash to drive it higher. On the other side of the spectrum if there are a lot of bears then there is a lot of cash on the sideline, and as the market rallies it drags that cash in as the bears give in. That cash provides the market the fuel to move higher. If bears are low it is the same as a lot of bulls: everyone is in and the market doesn't have the cash to drive it higher.
Bulls: 30.0%. Up modestly from 29.2%. On a rise, but still below the 35% level, below which is considered bullish. Up from 27.8% on the low this round, moving back up toward the 31.9% a month back and the 30.9% low hit in March. Steep drop from a rebound high at close to 50% on the run through May. In March the indicator did its job with the dive below 35% and the crossover with the bears. Now it is going above and beyond. Bulls and bears have crossed over again, doing so even before the prior lows are hit. The bulls and bears were eye to eye in mid-February and have crossed. A move into the lower 40's is a decline of significance. A move to 35% is a bullish indicator. This is smashing that. For reference it bottomed in the summer 2006, the last major round of selling ahead of this 2007 top, near 36%, and 35% is considered bullish.
Bears: 50.0%. Still rising as bears remain worried, up from 49.4%. Bears, despite what the bulls are doing, continue to increase, up from 48.9% that was up from 47.3%, 44.7% and 39.3% before that. A steady, strong rise and still going. Well above the bullish level and the highest since 1995. Again, that is one of the best indications that sentiment is getting extreme on the negative side. It is again past 35%, the level that historically indicates too much pessimism. As with the bulls the jump in bears did its job after hitting 44.7% in the third week of March that was up from an already freakishly strong 43.3% the week before. Up sharply from a low of 19.6% on the last rally. Bearishness peaked at 37.4% in September 2007. It topped the June 2006 peak (36%) on that run. That June peak eclipsed the March 2006 high (33%) and well above the 2005 highs that spawned new rallies (30% in May 2005, 29.2% in October 2005). This is a huge turn, unlike any seen in recent history.
NASDAQ
Stats: -4.17 points (-0.18%) to close at 2325.55
Volume: 2.4B (+5.23%). Rising, continued above average volume as NASDAQ jumped but then dumped.
Up Volume: 992.115M (-315.28M)
Down Volume: 1.353B (+475.11M)
A/D and Hi/Lo: Decliners led 1.15 to 1
Previous Session: Advancers led 1.27 to 1
New Highs: 62 (-6)
New Lows: 112 (+1)
NASDAQ CHART: http://investmenthouse.com/ihmedia/NASDAQ.jpeg
NASDAQ moved through its 50 day EMA (2341) this time. Of course it could not hold it, fading in the last hour with the market selling ahead of the jobs report. Still below that resistance as well as the old 2004/2006 trendline as well. Still a higher low, still with some upside pressure to break higher, but still unable to make a move through this resistance stick just yet.
NASDAQ 100 (-0.20%) was the leader intraday. It finally made it up to its 50 day EMA, tapping right at that level on the high and then fading back for a modest loss. Continues forming its nice rounded bottom, however, and that has the look of an upside breakout still in the cards.
NASDAQ 100 CHART: http://investmenthouse.com/ihmedia/NASDAQ100.jpeg
SOX CHART: http://investmenthouse.com/ihmedia/SOX.jpeg
SP500/NYSE
Stats: -16.88 points (-1.31%) to close at 1267.38
NYSE Volume: 1.456B (-1.35%). Volume backed off to average as NYSE faded back. That is the price/volume action you want on a pullback after a surge.
Up Volume: 460.913M (-587.873M)
Down Volume: 987.657M (+568.861M)
A/D and Hi/Lo: Decliners led 1.58 to 1
Previous Session: Advancers led 2.09 to 1
New Highs: 41 (-11)
New Lows: 113 (-1)
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
Faded but held easily at the 18 day EMA on the close on lighter average trade. Stronger volume on the Tuesday and Wednesday move higher (though no huge trade), then lighter volume on the test of near support. Though it failed at the mid-July peak given this pullback, that does not mean this move is in the dumpster.
SP600 (-0.60%) faded from its 50 day SMA on the high, but it tapped the 50 day EMA on the low and bounced off that level. It is testing back from key resistance, but still looking for it to bounce up toward the 380 to 383 and switches its pattern to more bullish.
SP600 Chart: http://investmenthouse.com/ihmedia/SP600.jpeg
SP400 CHART: http://investmenthouse.com/ihmedia/SP400.jpeg
DJ30
Of all the indices, DJ30 was the weakest in its performance, posting the largest percentage gain and also undercutting near support in the form of the 10 and 18 day EMA though just barely. DJ30 approached that trendline and faded with the rest of the market. Remember, it is playing tag a long given the light volume rise while the other indices moved higher on stronger trade.
Stats: -205.67 points (-1.78%) to close at 11378.02
VOLUME: 220M shares Thursday versus 208M shares Wednesday. Low volume on the way up, stronger volume on the selling, but it was still well below average trade so not attributing a lot of significance to that bump up on price.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
FRIDAY
Jobs report front and center, particularly after that gain in ADP and then the 448K in weekly claims. Weekly claims are trending higher and sharply so, and that typically doesn't bode well for the unemployment rate. A surprise and the market is poised to bounce as the NYSE indices rest on near support. Of course the question is if anyone would believe the data given the weekly claims keep trending higher and higher. If oil trends lower again, that may just be the salve that soothes any worries the jobs report brings. Maybe not Friday, but a continued trend lower will only help consumer and economic outlooks.
The indices still have a lot to overcome, but this pullback to near support after a pretty solid resumption of the relief bounce didn't do any damage, and if the market doesn't get a shock of bad news it will be ready to continue the recovery bounce and test that 50% retracement level. NASDAQ and its fight with the 50 day EMA remains an ongoing litmus test to monitor the progress.
This is likely ultimately just a bounce in continuing struggles for the market, but as noted above, that is also part of the bottoming process. More time is needed for more stocks and sectors to build bases they can rally from when the time is right. That time is not right for the market, but there are stocks, though small in number, that continue to set up patterns that can give us short term pops and others that have the kind of bases that can give us longer term moves.
Given it is most likely just a bounce in an ongoing correction process, there are also stocks that have rebounded from selling but are confronted with resistance, setting up another trip downside to further work on the bottom of their bases. Those present downside opportunity as they turn down from support, and as we are likely to get some other hard downside days in the future, they can make us some nice money as well as we take what the market gives us.
Support and Resistance
NASDAQ: Closed at 2325.55
Resistance:
2340 from the March 2007 low
2341 is the trendline from the summer 2004/July 2006 lows, Q4 2005 consolidation
The 50 day EMA at 2340
2358 is a 50% retracement of the June to July selloff.
2370 from the April 2006 peak
2378 is the mid-February peak; 2379 from the October 2006 peak
The 90 day SMA at 2383
2386 is the August 2007 intraday low
2388 is the June 2008 low
2392 is the April 2008 peak
2419 is the January 2008 peak and the early February peak
2451 is the August closing low
The 200 day SMA at 2452
2500 from interim August lows.
Support:
The 18 day EMA at 2303
2286 is the first April 2008 gap up point.
2261 is a March 2008 interim low
2202 is the January 2008 low
2155 is the March 2008 low
S&P 500: Closed at 1267.38
Resistance:
The 50 day EMA at 1299
1317 from the February low
1320 is a 50% retracement of the May to July selloff
1324 is the April low
1331 is the June low
1345 is an ancient trendline
1370 is the August 2007 intraday low
1374 is the March 2007 closing low
The 200 day SMA at 1383
1387 is the April 2008 intraday high
1396 is the February 2008 peak
1406 is the August and November 2007 closing low
Support:
1270 is the January low
1257 is the March low
1244 is an August 2005 peak
1240 to 1221 are September 2005 peaks1234 is the July 2006 low
1224 is the June 2006 low
1176 from the Q4 2005 lows
1167 is the January 2005 low
1154 from the May 2005 lows
1142 is the 2005 closing low
Dow: Closed at 11,378.02
Resistance:
11,634 is the 2004/2005 up trendline
11,634 is the January intraday low
11,670 is the May 2006 intraday high; 11,642 closing
11,731 is the March 2008 low
The 50 day EMA at 11,732
11,982 is a 50% retracement of the May to July selloff
12,050 from the March 2007
12,070 from the early February 2008 lows
The 90 day SMA at 12,211
12,250 from late March 2007 lows
12,518 is the August intraday low
12,573 is the mid-February high
The 200 day SMA at 12,580
12,743 is the November low
12,750 to 12,768 is the February 2008 peak and a series of lows and highs from August 2007
12,786 is the February 2007 peak
12,845 is the August closing low
13,092 is the December 2007 intraday low
13,133 is the May 2008 high
Support:
11,317 from March 2006
11,061 from February 2006
10,912 peak from March 2005
10,854 from December 2004
10,701-10,705 from July 2006, July 2005
Economic Calendar
These are consensus expectations. Our expectations will vary and are discussed in the 'Economy' section.
July 29 - Tuesday
Consumer confidence, July (10:00): 51.9 actual versus 50.0 expected, 51.0 prior (revised from 50.4)
July 30 - Wednesday
ADP employment, July (8:15): +9K actual versus -60K expected, -79K prior
Crude oil inventories (10:30): -100K actual versus -1.3M expected, -1.5M prior
July 31 - Thursday
GDP, Q2 advanced (8:30): 1.9% actual versus 2.3% expected, 0.9% prior (revised from 1.0%)
Deflator, Q2 (8:30): 1.1% actual versus 2.3% expected, 2.6% prior
Employment cost index, Q2 (8:30): 0.7% actual versus 0.7% expected, 0.7% prior
Initial jobless claims (8:30): 448K actual versus 395K expected, 404K prior
Chicago PMI, July (9:45): 50.8 actual versus 49.0 expected, 49.6 prior
August 1 - Friday
Non-farm payrolls, July (8:30): -75K expected, -62K prior
Unemployment rate, July (8:30): 5.6% expected, 5.5% prior
Average workweek, July: 33.7 expected, 33.7 prior
Hourly Earnings, July: 0.3% expected, 0.3% prior
Construction spending, June (10:00): -0.3% expected, -0.4% prior
ISM Index, July (10:00): 49.2 prior
End part 1 of 3
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